1. Work out where the money’s coming from
Gather together all the information you can about your potential sources of retirement income, Include your NHS pension, any other pension schemes you’ve belonged to, investments and savings, and any other income, such as rent on property you own. If you’re planning to take a ‘retirement job’, think realistically about your earnings and how many years you’ll be able to work.
2. Check your NHS pension
Go to the NHS Total Rewards site to get an up-to-date statement of your NHS pension benefits. Remember, retiring early means a permanently lower pension—this is not a ‘penalty’, but simply a consequence of drawing your pension for longer.
3. Keep track of old pension schemes
It’s easy to lose track of pensions from non-NHS jobs you may have left years ago. Make a list of these schemes and make sure each one has your current contact details. Ask the administrator for a benefits statement, which will show your pension benefits and when you can claim them. There’s a useful tool on the government website to help you identify the administrator for your old schemes.
4. Don’t forget the State Pension
The full State Pension is worth over £9,000 a year, but how much you’ll actually get depends on your NI contributions. Check your entitlement on the government website. Remember, you probably won’t be able to claim your state pension until you are at least 66—possibly several years after your NHS pension—so you may need another source of income to plug the gap.
5. Work out how much you need
Put together a simple post-retirement budget. Work backwards from your current spending and subtract any costs you’re unlikely to incur once you’ve retired: for example, commuting costs or your mortgage if it’s due to be paid off by then. Compare the results with your likely post-retirement income. If there’s a shortfall, you can look at flexible retirement options, continuing to work while drawing your pension or enhancing your NHS pension (see below).
6. Consider flexible retirement options
If you’re not ready to stop work altogether, discuss ‘flexible retirement’ options with your employer. These include a ’step down’, where you continue working but at a lower level, and ‘wind down’, which means staying in your existing job but working fewer hours. A part-time ‘retirement job’ — inside or outside the NHS — is also a good way to supplement your income while waiting for your state pension to kick in.
7. Lump sum or more pension?
You can convert some of your NHS pension into a tax-free lump sum when you retire. You could give yourself a well-earned retirement present or pay off the rest of your mortgage, for example. Or you could spread the money over several years to plug the gap until you draw your state pension. But if you have a shortfall in your retirement income, not taking a lump sum will give you a permanently higher pension.
8. Boost your NHS pension
The only cost-free way to boost your NHS pension is to work longer and build up more benefits in the scheme. But if you can afford it, you can buy extra NHS pension in ‘chunks’ of £250 — so, if you buy four ‘chunks’ you will increase your pension by £1,000 a year. Use the calculator on the NHS Pensions website to work out the cost. Alternatively, if you’re still a few years from retirement, you can make additional voluntary contributions (AVCs). These allow you to build up a second retirement income separately from your NHS pension. You get tax relief on AVCs but, like a private pension, your pension income is not guaranteed and depends on the scheme’s investment performance.
9. Check your tax relief allowances
Tax relief on your NHS pension contributions is usually limited to £40,000 in contributions each year and £1.73m over a lifetime. While this is plenty for most people, you can use the tool on the NHS Employers website to see if you are likely to come up against either of these limits. We recommend taking independent financial advice if you find yourself in this position.
10. Get your head around McCloud
The ‘McCloud remedy’ refers to government proposals to tackle age discrimination in the way the 2015 NHS Pension Scheme was introduced. The details are complicated but, in short, if you transferred into the 2015 scheme, you may need to make a choice when you retire about how your pension benefits are calculated. To find out more, watch the excellent briefing for MiP members by UNISON’s Alan Fox . More information is also available on the NHS Pensions website.
- Dale Walmsley is a pensions expert with First Actuarial and Craig Ryan is editor of Healthcare Manager. This article does not constitute individual financial advice and we always recommend consulting an independent financial adviser.